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Archive for July, 2011

I keep hearing from Democratic lawmakers that we need to impose a millionaire’s surtax, or tax the “rich” more. For 2008, the latest year for which figures are available, the IRS statistics show that the top 1% of all taxpayers, those with about $380,000 or more income, had 20% of gross income and yet paid 38% of all taxes. The top 10% pay in 69% of all taxes, and the top 5% pay in more than the next 95% combined.

This is not surprising, given that 51% pay no taxes at all, and 30% received payments from the federal government. Given that they pay nothing, net, into the system, there is no incentive to call for reduced spending, and every incentive to call for increased taxes on the wealthy.

Other data show that the effective tax rate on the highest 1% is 19% overall due to various deductions and credits in our Byzantine tax code. It costs roughly 30 cents on the dollar for tax compliance. That is $431 billion annually, according to Laffer associates. Laffer estimates that lowering the cost of tax compliance would add over 1% to GDP annually.

I wonder, if asked, what percentage of total taxes lawmakers think the top 1% should pay? Should it be 50%, 60% or 70%? The very question is wrong.

I believe we ought instead to make sure that everyone has “skin in the game”. All taxpayers need to pay even a de minimus amount in order to be true citizens with not only rights but also obligations. And if we instituted a flat tax of say 25% (as proposed by Rep. Paul Ryan), with few or no deductions, the “rich” would wind up paying substantially more in total than they currently do.

What could be more fair than if everyone paid (about) the same amount?